Karachi, September 16, 2024 – The Federal Board of Revenue (FBR) has announced that companies investing in Pakistan during the tax year 2024-25 are eligible to receive a tax credit under Section 65B of the Income Tax Ordinance, 2001. This initiative aims to encourage companies to invest in expanding, modernizing, and upgrading their industrial undertakings, which will contribute to the overall economic growth of the country.
According to Section 65B, a company that invests in plant and machinery for the purpose of extension, expansion, balancing, modernization, and replacement of existing installations in its industrial undertaking in Pakistan is entitled to a tax credit equal to 10% of the invested amount. This credit can be applied against the tax payable by the company, including minimum and final taxes.
Key Provisions of Section 65B for Tax Credit on Investment
1. Eligibility for Companies: To be eligible for this tax credit, the taxpayer must be a company investing in plant and machinery for industrial purposes within Pakistan. The investment must be for the purposes of extending or upgrading existing operations.
2. Tax Credit Rate: For tax year 2024-25, the tax credit is set at 10% of the total investment made in purchasing and installing new plant and machinery. This credit can be deducted from the company’s tax liability, including minimum and final taxes.
3. Carry Forward Provisions: If the tax payable by the company is less than the tax credit allowed, or if no tax is payable in the relevant tax year, the unused credit can be carried forward to subsequent tax years. For investments made under sub-section (1), the credit can be carried forward for a maximum of two tax years. For investments made under sub-section (4), the credit can be carried forward for up to five tax years.
4. Application for New Equity: Companies that were established before July 1, 2011, and make investments through 100% new equity between July 1, 2011, and June 30, 2016, are eligible for a tax credit of 20% of the invested amount. This applies to investments made for balancing, modernization, and replacement of existing plant and machinery. The tax credit is granted in the year in which the machinery is installed.
5. Compliance and Reassessment: If it is discovered by the Commissioner of Inland Revenue that the company has not fulfilled the conditions necessary for claiming the tax credit, the original credit allowed will be deemed incorrect. In such cases, the tax payable will be re-computed, and necessary adjustments will be made according to the provisions of the Income Tax Ordinance.
Impact of Tax Credit for Investment in Pakistan
This tax credit initiative under Section 65B is designed to stimulate industrial growth in Pakistan by encouraging companies to reinvest in their existing infrastructure. By offering tax relief for investments in plant and machinery, the FBR hopes to attract more capital inflows into the industrial sector, boosting productivity and modernizing existing operations.
Companies that take advantage of this tax credit can significantly reduce their tax liabilities, allowing them to reinvest their savings into further business expansion. This move is expected to not only benefit individual businesses but also positively impact Pakistan’s overall economy by increasing industrial output and generating employment opportunities.
For companies looking to modernize and expand their operations, the tax credit for investment offers a substantial incentive to invest in Pakistan’s industrial future during the tax year 2024-25.
